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Student Loan Law: 20 U.S.C. § 1087dd. Terms of loans

(a) Terms and conditions

(1) Loans from any student loan fund established pursuant to an agreement under section 1087cc of this title to any student by any institution shall, subject to such conditions, limitations, and requirements as the Secretary shall prescribe by regulation, be made on such terms and conditions as the institution may determine.

Student Loan Law: 31 U.S.C. § 3720A. Reduction of tax refund by amount of debt

(a) Any Federal agency that is owed by a person a past-due, legally enforceable debt (including debt administered by a third party acting as an agent for the Federal Government) shall, and any agency subject to section 9 of the Act of May 18, 1933 (16 U.S.C. 831h), owed such a debt may, in accordance with regulations issued pursuant to subsections (b) and (d), notify the Secretary of the Treasury at least once each year of the amount of such debt.

Student Loan Law: 15 U.S.C. § 1650. Preventing unfair and deceptive private educational lending practices and eliminating conflicts of interest

(a) Definitions

As used in this section—

(1) the term “cosigner”—

(A) means any individual who is liable for the obligation of another without compensation, regardless of how designated in the contract or instrument with respect to that obligation, other than an obligation under a private education loan extended to consolidate a consumer’s pre-existing private education loans;

Student Loan Law: 17.2.2.1 Generally

The Department does not review the educational quality of schools before deeming those institutions eligible to participate in the federal student aid programs. The Department instead verifies that institutions meet specified Title IV eligibility requirements—including financial responsibility and administrative capability standards—and enters into contracts referred to as “program participation agreements” (PPA) with eligible schools.3

Student Loan Law: 17.2.2.2.1 Overview

To participate in federal student aid programs, a school must enter into a program participation agreement (PPA) with the Department.4 Under the PPA, the school agrees to comply with the laws, regulations, standards, and policies governing the federal aid programs.

Student Loan Law: 17.2.2.2.4 Misrepresentations

The PPA statute states that an eligible institution that has engaged in substantial misrepresentation of the nature of its educational program, its financial charges, or the employability of its graduates may face suspension or termination of the eligibility status for any or all programs.74

Student Loan Law: 17.2.2.5 Gainful Employment

Under the HEA, to be eligible to participate in the federal assistance programs, for-profit institutions must only offer programs that provide training for gainful employment in a recognized occupation. These same provisions apply to public or nonprofit shorter-term training programs.193

Student Loan Law: 17.2.3.2.2 Reciprocity agreements between states

Under the HEA, institutions must be authorized in the state in which they are located in order to receive Title IV funds. However, federal regulations have largely left it up to states to decide whether a state must authorize distance education providers that serve their residents but are physically located in another state. This is an increasingly urgent problem.

Student Loan Law: 17.2.3.2.3 Federal regulations relating to distance education

Additionally, in September 2020, the Department finalized distance education regulations pertaining to eligibility for federal student aid under Title IV. The regulations took effect on July 1, 2021, but the Department allowed institutions to voluntarily implement them early.268 These regulations relax rules around how schools offer different types of distance education and “competency based education programs” that are eligible for federal student aid under Title IV. The 2020 regulations:

Student Loan Law: 7.3.1 Introduction

Consolidation is a process through which a borrower pays off one or more outstanding loans with a new loan—and potentially new repayment terms. Consolidation provides a path out of default for borrowers who can pay off their defaulted student loans with a new Direct Consolidation Loan56 and, if eligible, obtain an income-driven repayment (IDR) plan. After obtaining a consolidation loan, the borrower starts over with a new loan in good standing.

Student Loan Law: 5.2.1.1 History of the Department of Education Loan Servicing Contracts

Although the Department of Education (the Department) owns Direct Loans and some FFEL Program loans, it contracts with other entities to service these loans. The contracts the Department enters into with servicers (and the change requests that modify the contracts) are important to understanding the requirements the servicers are expected to meet and the incentives that motivate servicer conduct.

Student Loan Law: 5.2.1.3 Loan Performance and Servicer Allocation Metrics

The Department uses the results of the servicer performance metrics to rank the servicers and determine each servicer’s allocation of future loan volume when applicable. The Department publicly releases the results of these metrics and the subsequent rankings.45 In October 2021, the Department announced a two-year contract extension for the remaining six student loan servicers.46 The contract was signed in September 2021, with an effective date of December 15, 2021.

Student Loan Law: 5.2.2 FFEL Servicing

In 2008, Congress authorized the Department to purchase privately held FFEL Program loans in an effort to bring liquidity and stability to the federal student loan market during the financial crisis.73 The FEEL Program loans purchased by the Department became federally held, meaning that the Department assumed servicing responsibilities on those loans.74 The Department’s current servicing contract with TIVAS and nonprofit servicers applies to Direct Loans and Department-held FFEL Program loa

Student Loan Law: 5.2.3 Perkins Loans

The Perkins Loan Program expired on September 30, 2017, meaning that no new Perkins Loans have been originated since that time. However, outstanding Perkins Loans continue to be serviced and collected.78 Perkins Loan Program loans (Perkins Loans) were originated by participating schools and are repaid to the school.79 Schools are responsible for servicing and collecting the Perkins Loans that they originate.

Student Loan Law: 5.3 Common Servicing Problems

Borrowers frequently have problems with servicers—including getting objective and timely counseling about the range of repayment and relief options available, getting assistance in applying for and staying in income-driven repayment (IDR) plans, getting help with consolidating student loans, getting basic account information, having applications for repayment or relief timely and accurately resolved, and ensuring proper application of payments.

Student Loan Law: 5.5.2 Higher Education Act Loan Servicing Requirements

The FFEL regulations in the Higher Education Act describe loan servicing to include reporting to nationwide consumer reporting agencies, responding to borrower inquiries, establishing the terms of repayment, and reporting a borrower’s enrollment and loan status information.155 Lenders are required to respond, within thirty days after receipt, to any inquiry from a borrower or any endorser on a loan.156

Student Loan Law: 5.6.2 Public Enforcement

The Department of Education (the Department) and the Consumer Financial Protection Bureau (CFPB) are the primary federal regulators of federal student loan servicers. The Department contracts with Direct Loan servicers and therefore is the entity with authority to enforce these contracts. The Department is also responsible for approving guaranty agency involvement in the FFEL Program and overseeing FFEL servicers. The Department has authority to terminate contracts or otherwise penalize servicers that violate program requirements.